Had you bought Vertex Pharmaceuticals (VRTX 0.71%) shares 10 years ago, you'd be sitting pretty right now. The drugmaker soundly outperformed the market over that period thanks to its success in developing medicines that target cystic fibrosis. The first of Vertex's products to treat that rare genetic disease was approved in 2012.
Since then, it has added several more drugs and combination therapies for the disease to its portfolio. Importantly, Vertex markets the only approved medicines that address the underlying causes of cystic fibrosis. It's a lucrative market, so potential investors may wonder why other pharmaceutical companies haven't challenged Vertex Pharmaceuticals in it.
The answer to that question precisely highlights one of the key reasons to buy shares of this drugmaker.
Developing cystic fibrosis drugs is complicated
First, some background on cystic fibrosis. It is caused by mutations in a cystic fibrosis transmembrane conductance regulator (CFTR) gene. These mutations affect the production of CFTR protein, leading to the buildup of abnormally thick mucus in the lungs and other organs. The results are difficulty breathing, chronic lung infections, and a shortened lifespan.
The genetic cause of cystic fibrosis was discovered in 1989 by a team of scientists, but it wasn't until Vertex's breakthrough in 2012 that patients finally had access to a medicine that addresses the illness at the cellular level, as opposed to just targeting some of its symptoms. Here's the point. Developing effective therapies for the disease has proved incredibly difficult, as we can learn from the failures of various exemplary drugmakers.
Let's consider the case of AbbVie. In 2018, it assumed complete control for developing and commercializing a portfolio of potential cystic fibrosis medicines from Belgium-based biotech Galapagos NV, with which it had been collaborating. How has that turned out for AbbVie? Not well. Last year, it announced that a triple combination therapy for cystic fibrosis it was developing had failed to pass muster in a phase 2 study.
At that point, management vowed not to give up. But this year, AbbVie reported another clinical trial failure in its cystic fibrosis portfolio, and it's now completely exiting the area. And AbbVie is by no means the only company that has tried and failed to develop competitors for Vertex's cystic fibrosis products. It's just the most recent.
There is more where that came from
Many drugmakers choose to specialize in one or a few therapeutic areas. AbbVie is especially well-known for its immunology medicines. Gilead Sciences is an HIV expert. Novo Nordisk is a leader in diabetes drugs. In the same vein, Vertex Pharmaceuticals is the undisputed leader in cystic fibrosis. The company's research and development spending and efforts are geared toward creating medicines for this disease.
It has the expertise, experience, and data from past successes and failures to steer its research in the right direction. That confers Vertex a leg up on the competition. The biotech's most important medicine right now is Trikafta, a triple-drug combination that targets a mutation present in 90% of cystic fibrosis patients.
Trikafta's patent exclusivity will last until 2037. But there is still work to be done. Vertex's current medicines are unsuitable for about 10% of cystic fibrosis patients. It's developing newer products that should improve on its existing ones. But it isn't the only one looking to do so. There are others in this race.
For instance, gene-editing company Krystal Biotech is running an early-stage clinical trial for a cystic fibrosis candidate. But given its expertise and long track record of success, the smart money is still on Vertex to achieve more breakthroughs.
The path forward for Vertex
Will a competitor eventually develop an effective treatment that can compete with Vertex's? Probably. But it is planning ahead. The company has sought to diversify its portfolio of late, and is on the verge of doing so.
Management has set a goal of launching five new therapies in the next five years, and the company's R&D pipeline could deliver significant clinical and regulatory wins in the coming years. But even if it comes up short of that goal, Vertex Pharmaceuticals would still be an excellent biotech stock.
The combination of its dominance in cystic fibrosis and its rich pipeline of treatments for other conditions makes it a no-brainer stock to buy and hold.
